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Mid-trimester%20test%202008%20with%20solutions

# Mid-trimester%20test%202008%20with%20solutions - VERSION...

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VERSION WITH SOLUTIONS VICTORIA UNIVERSITY OF WELLINGTON FACULTY OF COMMERCE AND ADMINISTRATION SCHOOL OF ECONOMICS AND FINANCE MID-TRIMESTER TEST, 2008 ECON 201: MICROECONOMICS INSTRUCTIONS: Duration of test: 50 minutes. Total marks: 100, from 20 multiple choice questions @ 5 marks each. Pocket calculators can be used, but not notes or books. Please fill in your student ID number and choice of answer for each question carefully on the separate one-page answer sheet. For any calculations, use the back of the question pages, or the margins or any empty space on the question pages. Only the answer sheet is to be returned at the conclusion of the test. There are SEVEN pages of questions – check that your set is complete.

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Question 1 Producer surplus is (a) The area below the demand curve and above the market price (b) The area below the demand curve up to the equilibrium market quantity (c) The area above the short-run supply curve and below the market price (d) The rise in profit secured from a given bundle of inputs due to capital-saving technical progress Besanko and Braeutigam, p.342. Question 2 Which of the following is the Slutsky Equation, if ε is the price elasticity of demand for good x , I is the consumer’s budget, P x is the price of good x , S x Δ is the substitution effect on consumption of x due to a change in P x , I x is the income effect on consumption of x due to a change in I , and S is the proportion of the consumer’s budget that is spent on x . (a) x P P x x x S = (b) x I I x S x P P x I x x S = (c) x I S P x x S = (d) x I I x S I = Lecture 8 Slide 12, with the share written as S = xP x / I Question 3 If the demand curve is , what is the elasticity of demand when P = 4 : P 5 100 Q = (a) -0.08 (b) -0.25 (c) -4.0 (d) -1.36 When P=4, Q=100-20 = 80 so P / Q = 4 / 80 ECON 201 2008 Mid-trimester test 1
Elasticity at this point is dQ / dP . P / Q = -5 x 4 / 80 = -20 / 80 =-0.25 Question 4 Suppose the market for Good x is initially in equilibrium at P = 10 and Q = 7,500. Following a sudden decrease in supply, quantity falls to Q=7,200 while price rises to P=12. The implied price elasticity of demand is (a) -2.0 (b) -5.0 (c) -0.2 (d) -0.05 Quantity falls by 300 = 4%. Price rises by \$2 = 20%. Elasticity is (-4) ÷ (20) = -0.2.

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Mid-trimester%20test%202008%20with%20solutions - VERSION...

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